Big packaged-goods companies have been broadly losing share to smaller ones in recent years, according to a study by IRI and Boston Consulting. But lately some have moved to a battlefield where they hold a distinct size advantage -- federal courts.
The world's three biggest packaged-goods companies, facing increased investor pressure over sluggish sales growth, have each sued much-smaller rivals in federal courts this year over ad claims. This comes after years of relying on the lower-cost National Advertising Division of the Council of Better Business Bureaus for such disputes. While some see signs of bullying, the big players say they're taking appropriate steps to fight "egregiously" false claims.
Unilever's Oct. 31 lawsuit against Hampton Creek, alleging its Just Mayo brand is masquerading as mayonnaise despite having no eggs, is the latest. That follows Procter & Gamble Co. suing Hello Products in January, alleging the start-up's "99% Natural" claim on toothpaste was misleading, since 50% of its ingredients were chemically processed. Nestle in May sued Blue Buffalo claiming its ads disparaged Purina products while falsely claiming certain Blue Buffalo products have no animal by-products or grain.
These are the first such federal lawsuits by the big three CPGs since early 2009, when P&G sued Georgia-Pacific, and then only after G-P had sued P&G over paper towel ad claims. During that span, they've taken ad grievances to the NAD 17 times collectively.
It costs 10 to 20 times more to litigate disputes just up to the preliminary-injunction hearing in federal court rather than before the NAD, according to advertising lawyers. An NAD action costs $25,000 to $100,000 per party vs. $500,000 to $1 million for a federal case through the injunction hearing, and at least two of the cases are already beyond the injunction stage.
"The NAD does provide a more level playing field for small companies," said David Mallen, a former official of the body and now a private advertising lawyer. He believes big companies may be "thinking tactically" that smaller ones will fold in the face of expensive federal litigation. But he said federal court is faster. Smaller companies also tend to be more aggressive with ad claims and possibly less likely to abide by NAD rulings, he said.
"It might be that going after a little guy with a legal attack is what it appears to be," said Hello Products founder and CEO Craig Dubitsky. "You do have a pretty good sense that you're going to be depleting that company of some resources, whether they're financial, operational or emotional."
A P&G spokeswoman said in an e-mail "we take legal action in court when consumers are subjected to advertising that is so egregiously false that an immediate action such as a preliminary injunction is warranted." She said P&G doesn't consider size of the company, but that companies with decades of experience "often will have processes to help avoid the use of egregious claims."
Hello, when approached by P&G last year, agreed to change its labels at the next printing, though Mr. Dubitsky said he doesn't think they were false. When that hadn't happened months later, P&G sued. Hello then agreed in court to pull the old products off shelves, but countersued P&G, claiming it breached an agreement not to sue if labels were changed at the next printing.
Nestle's lawsuit has spawned even more trouble for Blue Buffalo -- a dozen fraud lawsuits by trial lawyers on behalf of consumers citing similar allegations.
But Blue Buffalo is not a small company, said Nestle Purina CMO Steven Crimmins, noting that it has a billion dollars in sales, is owned by a multi-billion-dollar private-equity firm and last year spent $50 million in advertising. It has, however, a small fraction of Nestle's $96 billion in global sales.
Nestle supports the NAD, but Blue Buffalo's actions "were so egregious that we needed a lawsuit," Mr. Crimmins said.
Blue Buffalo, which declined to comment, has since acknowledged some of its products had chicken byproduct meal mistakenly used by a supplier, but has counter-sued Nestle for defamation.
A Unilever spokeswoman said its suit was needed both to protect consumers and the Hellman's and Best Foods mayonnaise brands from Just Mayo's misleading label.
Hampton Creek CEO Joshua Tetrick said his company is "on the right side of the law" and having "productive conversation" with the Food and Drug Administration on the label. Publicity around the lawsuit, he added, has helped get word out about Just Mayo's more sustainable pea-based alternative to eggs and prompted "tens of thousands" of messages of support from retailers and consumers, including a 25,000-signature Change.org petition accusing Unilever of bullying.